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Compute the net present value of each project

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Reference no: EM131781256

Doug's Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,100. Each project will last for 3 years and produce the following net annual cash flows.

Year AA BB CC
1 $7,350   $10,500   $13,650  
2 9,450   10,500   12,600  
3 12,600   10,500   11,550  
Total $29,400   $31,500   $37,800  

The equipment's salvage value is zero, and Doug uses straight-line depreciation. Doug will not accept any project with a cash payback period over 2 years. Doug's required rate of return is 12%. Click here to view PV table.

(a) Compute each project's payback period. (Round answers to 2 decimal places, e.g. 15.25.)

Which is the most desirable project?

Which is the least desirable project?

(b) Compute the net present value of each project. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round final answers to the nearest whole dollar, e.g. 5,275. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Reference no: EM131781256

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